Concord Enviro Systems Ltd IPO

Status: Closed

Overview

IPO date

19 Dec 2024 to 23 Dec 2024

Face value

₹ 5 per share

Price

₹ 665 to ₹701 per share

Issue Size

7,137,321 shares
(aggregating up to ₹ 500.33 Cr)

Allotment Date

24 Dec 2024

Listing at

NSE

Issue type

Book Building

Sector

Capital Goods-Non Electrical Equipment

Objectives of Concord Enviro Systems Ltd IPO

Initial public offering of 7,137,321* equity shares of face value of Rs. 5 each ("Equity Shares") of the company for cash at a price of Rs. 701 per equity share (including a share premium of Rs. 696 per equity share) ("Offer Price") aggregating to Rs. 500.33 crores (the "Offer") comprising a fresh issue of 2,496,433* equity shares of face value of Rs. 5 each aggregating to Rs. 175.00 crores by the company ("Fresh Issue") and an offer for sale of 4,640,888* equity shares of face value of Rs. 5 each ("The Offered Shares") comprising of to 4,186,368* equity shares by AF Holdings, 150,600 equity shares by Prayas Goel, 150,500* equity shares by Prerak Goel, 29,500* equity shares by Namrata Goel, 31,500* equity shares by Nidhi Goel and 92,420* equity shares by Pushpa Goel aggregating to Rs. 325.33* crores (the "Selling Shareholders" and such offer, the "Offer for Sale"). The offer will constitute 34.49% of the post-offer paid up equity share capital of the company. The face value of the equity share is Rs. 5 each and the offer price is 140.20 times the face value of the equity shares. *Subject to finalisation of the basis of the allotment

Objectives of Concord Enviro Systems Ltd IPO

Concord Enviro Systems Ltd IPO Strategy

About Concord Enviro Systems Ltd

Concord Enviro Systems Limited was originally incorporated as 'Concord Enviro Systems Private Limited' dated July 1, 1999, issued by the RoC in Mumbai. Company name was changed to 'Concord Enviro Systems Limited', upon conversion into a Public Limited and a fresh Certificate of Incorporation on June 9, 2022 was issued by RoC upon the Conversion of Company. Presently, the Company is engaged in manufacturing and trading of water treatment systems, water pollution control equipment, bio filters, resource recovery systems using membrane technology and operational and maintenance services. In addition to this, it offer a comprehensive suite of O&M services including spare parts. It has introduced digitalized solutions to provide data capture and analysis platforms that help real-time monitoring, troubleshooting errors and preventative maintenance of installed systems and plants. It has 2 manufacturing facilities, one in Vasai, Maharashtra and the other in Sharjah, UAE. The business comprises in manufacture and sale or lease of systems and plants; O&M services; manufacture and sale of consumables and spare parts (including membranes, chemicals and consumables); and manufacture and sale of modules. Apart from these, the Company design custom solutions and manufacture systems for industrial wastewater treatment and reuse and seawater desalination. Its solutions include treatment in wastewater using membrane-based systems, ZLD using WHEs and dryers and desalination of seawater. It was the first to introduce UHPRO membranes in India, which has capability of high recovery rates. Apart from these, the ZLD solution using ultra-high pressure reverse osmosis (UHPRO) systems and advanced waste heat evaporation systems reduces total energy demand for ZLD . The waste heat evaporation plants use thermal energy from waste heat such as engine cooling heat/exhaust heat as a means to extract clean water from highly concentrated waste waters and reverse osmosis plant rejects. In year 1992-93, the Company supplied reverse osmosis distillation plant to the Indian Navy for user and evaluation trials. It got into offshore seawater desalination equipment supply through Subsidiary, Rochem Separation Systems (India) Private Limited and acquired 50% equity share capital. Later, in 2000-01, the Company expanded into installation of industrial wastewater reuse through, Rochem Separation Systems (India) Private Limited along with Aurobindo Pharma Limited. It set up operations in Sharjah Airport International Free Zone through formation of Subsidiary, Blue Water Trading and Treatment (FZE) in 2006-07. The Company ventured into to the oil and gas sector through Subsidiary, Rochem Separation Systems (India) Private Limited in 2008-09. In 2009-10, Company acquired the entire shareholding in Reva Enviro Systems Private Limited pursuant to a Share Purchase Agreement dated June 2, 2009 and expanded the manufacturing plants in the UAE through formation of a new subsidiary, Concord Enviro FZE. It also diversified the business to the food and beverage sector in 2010-11. In 2014-15, it sold NF membrane plant through our Subsidiary, Rochem Separation Systems (India) Private Limited. The Company formed a subsidiary, Roserve Enviro Private Limited, to carry on business in owning and providing all kinds of reverse osmosis plants and allied equipment. In 2017-18, Rochem Separation Systems (India) Private Limited installed first HPRO System and commercialized waste heat evaporators in 2018-19. In December 2024, the Company came out with its Initial Public Offer of 7137321 Equity Shares of Rs 5/- per share by raising funds aggregating to Rs 500 Cr, comprising a fresh issue of 2,496,433 Equity Shares aggregating to Rs 175 Cr and 4,640,888 Equity Shares aggregating to Rs 325 Cr through offer for sale. The Company has completed wastewater package from refinery sector from Megha Engineering & Infrastructures Limited in 2024.

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Strengths vs Risks of Concord Enviro Systems Ltd

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Strengths

Expertise in ZLD technology in India and well placed to harness global industry opportunities.
Integrated solutions provider supported by backward integrated manufacturing facilities.
Established presence in large international markets.
Diversified customer base across multiple industries and geographies.
Focus on innovation supported by R&D and design capabilities.
Promoters and management team delivering financial performance.

Risks

The company's business is dependent and will continue to depends on its manufacturing facilities. For Fiscal 2024 and the five-months ended August 31, 2024, for its manufacturing facilities at Vasai and Sharjah, the company total operating costs were Rs. 1,312.26 million and Rs. 861.68 million, respectively. The company is subject to certain risks in its manufacturing process which are outside the company control. Any such risks if materialised, could have an adverse effect on its business, results of operations, financial condition and cash flows.
Its capacity utilization has been low in the five months ended August 31, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022, which exposes it to higher production costs and lower profitability. Low capacity utilisation in the future may adversely affect its business, results of operations and financial condition. Information relating to the installed manufacturing capacity of its two manufacturing facilities included in this Red Herring Prospectus are based on various assumptions and estimates and future production and capacity may vary.
The company is dependent on and derives a substantial portion of its revenue (more than 50%) from its top 10 customers. During August 31, 2024 and Fiscal 2024, our revenue from the company top 10 customers was Rs. 1,127.41 and Rs. 2,779.95 million, which is 54.69% and 55.95% of its revenue from operations respectively. Cancellation by customers or delay or reduction in their orders could have a material adverse effect on its business, results of operations and financial condition. The company is also have a number of Government customers which exposes it to various risks inherent in doing business with them, which may adversely affect its business, results of operations and financial condition.
The contracts in its Order Book may be adjusted, cancelled or suspended by the company customers and, therefore its Order Book is not necessarily indicative of the company future revenue or profit. Its total Order Book for August 31, 2024 was 5,017.46 and Fiscal 2024, was Rs. 4,631.92 million. Its actual income may be significantly less than the estimates reflected in its Order Book, which could adversely affect the company results of operations.
The company does not own certain of the premises of its manufacturing facilities and the company Registered and Corporate Office, including its proposed Assembly Unit.
In August 31, 2024 and Fiscal 2024, its cost of raw materials and components consumed consolidated with purchases of stock-in trade amounted to 1,046.95 and Rs. 2,615.60 million and 50.68% and 55.94% of its total expenses, respectively. Any shortfall in the supply of its components and raw materials or an increase in the company component or raw material costs, or other input costs, may adversely affect the pricing and supply of its products and have an adverse effect on the company business, results of operations and financial condition.
The cmompany has subsidiaries that have incurred losses in Fiscals 2024 and 2022.
The company is dependent on its research and development activities for the company future success. In August 31, 2024 and Fiscal 2024, its total R&D expenses amounted to Rs. 6.42 million and Rs. 13.48 million, which is 0.31% and 0.29% of its total expenses, respectively. If the company does not successfully develop new wastewater treatment membranes, systems and plants in a timely and cost-effective manner, its business, results of operations and financial condition may be adversely affected.
The present Offer comprises an Offer for Sale by the Selling Shareholders and a Fresh Issue of Equity Shares. The Company will only receive funds from the Fresh Issue portion and the funds from Offer for Sale portion will be received by the Selling Shareholders.
The company has in the past entered into related party transactions and may continue to do so in the future, which may potentially involve conflicts of interest with the equity shareholders.
The company requires various regulatory approvals and licenses for the purpose of its business. The company inability to obtain, maintain or renew such regulatory approvals and licenses for the purpose of its business in a timely manner or at all, or to comply with the terms and conditions of its existing regulatory approvals and licenses, or maintaining the required filings and registers under such required laws, may have a material adverse effect on the continuity of its business and may impede the company effective operations in the future.
Its operations are subject to environmental and workers' health and safety laws and regulations. Its may have to incur material costs to comply with these regulations or suffer material liabilities or damages in the event of an incidence or non-compliance of environment and other similar laws and regulations which may have a material adverse effect on its reputation, business, financial condition and results of operations.
Its operations are subject to various health, safety, and environmental risks associated with industrial water and wastewater treatment. Its may face significant costs to mitigate these risks or incur material liabilities, including health and safety incidents, exposure to hazardous materials, or non-compliance with environmental regulations, which could have a material adverse effect on its operations, financial condition, and reputation.
The company requires sizeable amounts of working capital for its continued operation and growth. In August 31, 2024 and Fiscal 2024, its total outstanding working capital loans were Rs. 1,442.45 million and Rs. 1,303.67 million, which were 22.54% and 20.77% of its total assets, respectively. The company inability to meet its working capital requirements could have a material adverse effect on its business, results of operations and financial condition. Further, any surplus production on account of inaccurate forecasting of customer requirements and failures to manage inventory could adversely affect its business, results of operations and financial condition.
Its inability to keep the company technical knowledge confidential and maintain, protect and enforce its intellectual property rights, could adversely affect its business, results of operations and financial condition. Further, there are entities in India with a similar name to the Company and that are unrelated to the Company. If its products were found to be infringing on the intellectual property rights of a third-party, the company could be required to cease selling the infringing products, causing it to lose future sales revenue from such products and face substantial liabilities for patent infringement.
There are 21 outstanding litigations against the Company, Promoters, Subsidiaries and certain Directors. Any adverse decision in such proceedings may render it/them liable to liabilities/penalties and may adversely affect its business, results of operations and financial condition.
Certain of its corporate filings, resolutions and records are not traceable. The company cannot assure that regulatory proceedings or actions will not be initiated against it in the future and the company will not be subject to any penalty imposed by the competent regulatory authority in this regard.
The company will not receive any proceeds from the Offer for Sale. The Selling Shareholders including the Promoter Selling Shareholders will receive the net proceeds from the Offer for Sale.
There is an outstanding legal proceeding involving the logo of the Company. Failures to defend such proceeding successfully may have an adverse effect on its business prospects, financial condition, results of ongoing operations and reputation.
The company has had low PAT margins during the five-month period ended August 31, 2024 and during Fiscal 2024, Fiscal 2023 and Fiscal 2022.
A significant portion of its overall expenses are towards employees, any fluctuations in employee benefit expenses could impact its financial performance.
Its EBITDA margins have fluctuated in the past due to several factors and these factors could impact its future profitability as well.
Water reuse and zero liquid discharge technology is subject to rapid change. These changes may affect the demand for its services and products. If the company is unable to keep abreast of the technological changes and new product introductions are unable to capitalize upon opportunities for setting up of Compressed Biogas Plants ("CBG Plants") as per its business plan it could have a material adverse impact on the company's business, results of operations and financial condition may be adversely affected.
There have been certain instances of delays in payment of statutory dues by the Company and its Subsidiaries in the past. As of August 31, 2024, the Company and its Subsidiaries had delays in payment of statutory dues amounting to Rs. 24.32 million and 24.20. Any delay in payment of statutory dues by the Company in future, may result in the imposition of penalties and in turn may have an adverse effect on the Company's business, financial condition, results of operation and cash flows.
Its profit for the Fiscals 2024, 2023 and 2022 may not be indicative of its future financial performance. Failures to effectively manage its growth could materially and adversely affect the success of the company's business and / or impact its margins.
As on August 31, 2024 and March 31, 2024, the total borrowings of CEF were 657.26 and Rs. 557.80 million, respectively. The company propose to prepay or repay all or a portion of certain outstanding borrowings availed by its Subsidiary, Concord Enviro FZE ("CEF").
The company operates in a competitive environment and may not be able to effectively compete. Its faces competition from both domestic as well as multinational corporations and its inability to compete effectively could result in the loss of customers, hence, its market share, which could have an adverse effect on its business, results of operations, financial condition and future prospects.
Its sale of systems and plants are subject to seasonality, which may contribute to fluctuations in the company results of operations. Its revenue from the sale of Systems and Plants in for the five-months ended August 31, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022 were Rs. 989.88 million, Rs. 2,961.81 million, Rs. 1,608.69 million and Rs. 1,631.45 million, respectively.
A portion of its funding requirements and proposed deployment of the Net Proceeds are based on management estimates and may be subject to change based on various factors, some of which are beyond its control. Further, [*]% of the proceeds of the Offer will be infused into the Company as the Fresh Issue and be deployed towards the objects and [*]% of the proceeds of the Offer will be distributed to the Selling Shareholders in proportion of their Sale Shares. The Offer comprises a Fresh Issue of up to [*] Equity Shares, aggregating up to Rs. 1,750.00 million by the Company.
The company has incurred significant capital expenditure for the five-months ended August 31, 2024, Fiscals 2024, 2023 and 2022. Its may require substantial financing for the company's business operations and planned capital expenditure and the failure to obtain additional financing on terms commercially acceptable to it may adversely affect its ability to grow and the company future profitability.
Its inability to successfully implement some or all the company's business strategies in a timely manner or at all and its failures to manage the company growth effectively could have an adverse effect on its business.
The company is dependent upon the experience and skill of its management team and a number of key managerial personnel and senior management. As of August 31, 2024, the company had 1,141 employees and its attrition rate for the same period was 10.89%. If the company is unable to attract or retain such qualified personnel, this could adversely affect its business, results of operations and financial condition.
Its inability to collect receivables and default in payment from the company customers could result in the reduction of its profits and affect the company cash flows.
Variations in its total income, growth in revenue from operations, return on equity, and profit may adversely affect its business, financial performance, and results of operations.
The company could incur losses under its rental agreements with its customers or be subjected to disputes or contractual penalties as a result of failures to meet contract specifications which may have a material adverse effect on its business, results of operations and financial condition.
Certain of its Joint Ventures are not wholly owned by it and present risks that its joint venture partners will fails to meet their obligations or that the company will have conflicts with its joint venture partners.
Its revenue from operations is dependent on the three business verticals i.e. systems and plants, sale of consumables and spare parts and O&M services. Any factors beyond its control or any cancellation of orders by the company customers under any of these verticals could have a material adverse effect on its business, results of operations and financial condition.
Apart from one of its directors, none of the company Directors have any prior experience of directorships in listed companies.
The company faces foreign exchange risks that could adversely affect its results of operations as a portion of the company revenue and expenditure is denominated in foreign currencies. In August 31, 2024 and Fiscal 2024, Rs. 915.28 million and Rs. 2,075.16 million of its revenue from operations were derived from outside India, respectively.
The company is dependent on the recurring revenue from its operations and maintenance business. The company revenue from operations from its O&M business for August 31, 2024 and Fiscal 2024 was Rs.661.67 million and Rs. 973.18 million, which is 32.09% and 19.59% of its revenue from operations, respectively. Cancellations of its operating and maintenance agreements may adversely affect the company's business, financial condition, results of operations and prospects.
Its contingent liabilities and commitments could materially and adversely affect the company's business, results of operations and financial condition. At August 31, 2024 and in Fiscal 2024, Rs. 915.28 million and Rs. 2,075.16 million of its revenue from operations were derived from outside India, respectively.
The company operates through its subsidiaries and intend to invest further in these subsidiaries towards growing its business. If the company is not able to successfully manage its subsidiaries, it could have a material impact on the company results from operations and financial condition.
At August 31, 2024 and in Fiscal 2024, Rs. 915.28 million and Rs. 2,075.16 million of its revenue from operations were derived from outside India, respectively. Its manufacturing facilities are located in Vasai, Maharashtra and Sharjah, United Arab Emirates, exposing it to regulatory and other geography specific risks such as labour unrests, terrorist attacks, other acts of violence and occurrence of natural and man-made disasters.
Its business may be adversely affected if the company is unable to maintain and grow its brand image. In particular, the company failures to maintain its quality accreditations and certifications may negatively impact the company brand and reputation.
The company is dependent on project awards which are subject to cancellation and changes in scope of services and for which cost over-runs and delays may adversely affect its business, results of operations and financial condition. On August 31, 2024 and in Fiscal 2024, Rs. 989.88 million and Rs. 2961.81 million of its revenue from operations were derived from outside India, respectively.
Its business may expose the company to potential warranty claims, product recalls and returns, which could adversely affect its results operations, goodwill and the marketability of the company products.
Any variation in the utilisation of the Net Proceeds would be subject to certain compliance requirements, including prior shareholders' approval.
The company is subject to strict quality requirements, regular inspections and audits, and the success and wide acceptability of its products is largely dependent upon the company quality controls and standards.
There are certain KPIs in relation to the Company disclosed in this Red Herring Prospectus that may have a bearing for arriving at the basis for Offer Price. If its KPIs are not accurate representations of the company business, if investors do not perceive its operating metrics to be accurate or if the company discover material inaccuracies with respect to these figures, the company expect that its business, reputation, financial condition, and results of operations would be adversely affected.
Its insurance coverage may not adequately protect the company against all losses or the insurance cover may not be available for all the losses as per the insurance policy, which could adversely affect business, results of operations and financial condition.
Failures or disruption of its IT, manufacturing automation systems and/or enterprise resource planning ("ERP") solutions may adversely affect its business, results of operations and financial condition.
The company is dependent on third party transportation and logistics service providers for supply of raw materials, delivery of its products and supply of utilities, such as water and electricity, at the company manufacturing facilities. Any disruption in the supply or increase in the charges of these service providers could adversely affect its business, results of operations and financial condition.
Any downgrade of its debt ratings could adversely affect the company's business.
The company has adopted the Concord Enviro Employee Stock Option Plan 2022 (the "ESOP 2022 Scheme"). The grant of options under the ESOP 2022 Scheme may result in a charge to its profit and loss account, increase the company employee expenses and may adversely impact its profitability and cash flows.
An inability to comply with repayment and other covenants in the financing agreements or otherwise meet its debt servicing obligations could adversely affect the company's business, financial condition, cash flows and credit rating.
Its Subsidiaries and Joint Ventures may not pay cash dividends on shares that the company hold in them. Consequently, the Company may not receive any return on investments in its Subsidiaries and Joint Ventures.
Its employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which may result in the Company facing penalties and fines.
Some of its Directors and Promoters may have interest in entities, which are in businesses similar to its and this may result in conflict of interest with the company.
If the company is unable to establish and maintain an effective internal controls and compliance system, its business and reputation could be adversely affected.
Its Promoters, certain of the company Directors and Key Managerial Personnel may have interests other than reimbursement of expenses incurred and normal remuneration or benefits in the Company.
After the completion of the Offer, its Promoter will continue to collectively hold substantial shareholding in the Company.
The company cannot assure payment of dividends on the Equity Shares in the future.
The company track certain operational metrics and non-generally accepted accounting principles, measures with internal systems and tools and does not independently verify such metrics. Certain of its operational metrics are subject to inherent challenges in measurement and any real or perceived inaccuracies in such metrics may adversely affect its business and reputation.
Certain sections of this Red Herring Prospectus contain information from the 1Lattice Report which its commissioned and purchased and any reliance on such information for making an investment decision in the Offer is subject to inherent risks.